- A combination of actors prompted some fresh selling around USD/CAD on Monday.
- Bullish oil prices underpinned the loonie and exerted pressure amid retreating USD.
- The Fed’s hawkish turn acted as a tailwind for the USD and helped limit the downside.
The USD/CAD pair struggled to capitalize on last week’s post-FOMC strong move up and witnessed an intraday turnaround from near two-month tops touched earlier on Monday. This marked the first day of a negative move in the previous five sessions and was sponsored by a combination of factors. A goodish rebound in the global equity markets prompted some profit-taking around the safe-haven US dollar. On the other hand, bullish crude oil prices underpinned the commodity-linked loonie and exerted some additional downward pressure on the major.
WTI crude oil gained the most in four weeks and climbed to fresh multi-year tops amid expectations for a strong pickup in fuel demand. Apart from this, a pause in talks to revive the Iran nuclear deal and signs of a rapidly tightening US market further boosted the black gold. In fact, Genscape reported stockpiles at the key American storage hub of Cushing fell again last week from the lowest level since March 2020. This helped offset concerns about a comeback of COVID-19 infections in several parts of Asia, which reminded that the recovery will be uneven.
Meanwhile, a solid rebound in the US Treasury bond yields did little to impress the USD bulls or lend any support to the major. That said, the Fed’s signal that it might raise interest rates at a much faster pace than anticipated previously act as a tailwind for the greenback. This, in turn, helped limit any further losses, rather assisted the pair to regain some positive traction during the Asian session on Tuesday. The market focus now shifts to the Fed Chair Jerome Powell’s testimony before the House Select Subcommittee on the Coronavirus Crisis.
In prepared testimony for the congressional hearing, Powell said that the US economy continues to show sustained improvement from the impact of the coronavirus pandemic. He also highlighted rising inflation pressures but expects it to move back towards the Fed’s 2% target once supply imbalance resolves. Nevertheless, Powell’s remarks might influence the USD later during the US session. Apart from this, second-tier US economic data – Existing Home Sales and Richmond Manufacturing Index – and oil price dynamics might further produce some meaningful trading opportunities around the major.
Short-term technical outlook
From a technical perspective, the pair on Monday retreated from a previous strong support breakpoint, now turned resistance near the 1.2485 region. This should now act as a key pivotal point for short-term traders and help determine the next leg of a directional move. Meanwhile, the overnight slide might still be categorized as a corrective pullback. Moreover, the emergence of some dip-buying on Tuesday supports prospects for additional gains. That said, it will still be prudent to wait for a convincing break through the 1.2485 region before positioning for any further appreciating move.
Some follow-through buying beyond the key 1.2500 psychological mark will be seen as a fresh trigger for bullish traders and push the pair further towards the 1.2560 region. The momentum could further get extended and allow the pair to aim back to reclaim the 1.2600 mark. This is followed by the 1.2625-30 supply zone and April monthly swing highs, around the 1.2650-55 region. A sustained move beyond should pave the way for an extension of the recent strong recovery move from the vicinity of the 1.2000 mark, or multi-year lows touched earlier this month.
In the meantime, the 1.2400 round-figure mark might act as an immediate resistance ahead of the 1.2425-30 region. On the flip side, any meaningful slide might still be seen as a buying opportunity near the 1.2300 mark. Failure to defend the mentioned handle might prompt some technical selling and accelerate the slide further towards the 1.2270 horizontal support. The downward momentum could further get extended, though is more likely to remain limited near the 1.2200 mark.